For a country to properly integrate itself in global trade flows, it is vital for it to have highly efficient and effective port terminals. That said, many countries especially developing ones have poor port terminal services characterized by high dwell time, underutilization of resources and low levels of productivity. These countries usually attract international port terminal operators to improve and offer these port services. This study is about an international port terminal operator namely APM Terminals (APMT) already operating as a joint venture under the name of CargoTerminais [Appendix A] in port Luanda - the capital city of Angola - seeking to seize opportunities and grow its business by investing in another port namely Namibe in Angola itself.
Angola one of the fastest growing economies in Africa offers lucrative business opportunities to foreign investors who can find the right strategy for entry and operating in the country. APMT, a global port terminal operator, already operating in Luanda since 2007, has a great opportunity to expand its business through Namibe Port and is well positioned to win the concession.
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Below is a summary of the key findings of the study:
Angola has been enjoying peace over the last decade and is likely to continue it subject to the results of government efforts to reduce poverty, increase employment opportunities and to increase the general standard of living of the common people.
Angola offers great business opportunities supported by a high level of GDP growth. However the high dependency of the country on oil revenues is a risk in case of fall in oil prices or disruption in production. The government is spending heavily to diversify the economy and to wean away from too much oil dependency but is a long way out.
Angola has a very weak institutional and highly regulatory environment leading to high cost of setting up and running businesses. Corruption is rampant and lobbying is very common. In spite of all these difficult circumstances businesses have a good opportunities to make decent profit due to lesser competition to established companies; although this situation is changing slowly leading to market efficiencies and increased competition.
Lack of skilled work force is a major problem mainly due to prolonged civil war and weak education system. For available resources there is high competition and significant risks of wage inflation.
Based on Porter's five forces analysis, it was observed that there is a high entry barrier in the Port Terminal industry given the high fixed costs involved. ICTSI remains the only major competitor to APMT for Namibe port. However, (APMT) Cargo Terminais has a competitive advantage as it already has a good standing and reputation in Angola serving Luanda Port since 2007. Its operational efficiency, managerial effectiveness and high involvement in CSR are all well recognized.
Investing in Namibe port is a strategic fit and will help APMT pursue its concentration strategy to achieve global market coverage and establish itself as the leading terminal operator in Africa and especially West Africa.
A joint venture (JV) with its current partners (CargoTerminais) is the best entry mode for APMT considering the business and regulatory environment and also to steer though the cultural challenges on offer for companies operating here.
For new businesses in these regions, APMT adopts a Support, Build and Transfer method to HRM and invests significantly in training and development of local.
Rationale for choosing Angola
It is a known fact that Africa is experiencing spectacular economic growth and over the last decade (2001-2010), The Economist (2011) found that six over ten of the fastest growing economies were in the sub-Saharan Africa outdoing the BRICs. The IMF further forecasts that the continent will occupy seven of the top ten places over the next five years.
Figure : World's ten fastest-growing economies (Source: The Economist)
Angola is the chosen emerging economy for this study. Angola recorded an annual average GDP growth of 11.1% over the past decade outdoing China, the BRICS's giant. This growth is expected to persist in the coming years and it is forecasted that GDP growth rates of 8.2% and 7.1% will be recorded in 2012 and 2013 aided by the start of the USD 9 billion Liquefied Natural Gas (LNG) project and the expected increase of oil production to over 2 million bpd (barrels per day).African economic outlook 2012
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Moreover, the country is a hot spot for oil companies and construction companies trying to develop the country from the consequences of a very prolonged war. A country with over 20 Million people and with little infrastructure the country holds tremendous potential for future improvement in the standard of life of common people.
Summary of PESTEL Analysis
Below is a summary of the Pestel Analysis, Appendix B provides for a detailed one.
Angola is fast emerging as a country of interest in the South West African region driven mostly by oil exploration and production. Rising from the shadows of the civil war which lasted 27 years, Angola in the last decade has shown great promise as a destination of international investment in construction and oil exploration. Continued social and political stability among other things is dependent on eliminating poverty and improvement in standard of life and creating employment opportunities for the young mostly uneducated population. Angolan legal system is still evolving characterized by lack of capacity and ineffectiveness leading to high cost of doing business in the country. Initial years since the civil war was characterized by high inflation fanned by domestic demand and poor availability of locally produced goods. Improvement in supply side and increasing domestic production have helped the country achieve relatively lower inflation rates in past years leading to actual improvement in standard of life of common people. Although lack of transparency and bureaucracy shunned foreign investments in the initial years after civil war, FDI has picked up significantly in recent years mainly in the oil and gas sector and infrastructure areas. This has led to high single digit growth of GDP in both oil and non-oil sectors in the last few years and has impacted positively the disposable income per capita during recent years. Increase in trade volumes has coincided with Angola joining various international agencies namely the World Trade Organization (WTO), the Southern African Development Community (SADC) and Organization of Petroleum Exporting Countries (OPEC). Angola's lack of basic infrastructure like paved roads, bridges, good universities and lack of adequate power is a bottle neck in terms of improving the local production and also a deterrent for many foreign companies wanting to set shop in Angola. Angola's social fabric paints a very concerning picture with rural side poverty almost at 60% and high disparity in income distribution with 60% of wealth in the hands of top 20% of the country and the bottom with less than 3% share of it. Although Angola is a very young population showing recent improvements in life expectancy the country still lacks good primary, secondary, university and vocational training institutes leading to high shortage of skilled workers and rising wages for companies doing business in Angola. Mobile and fixed line telephony penetration is low and costs are extremely high due to inefficient market dynamics and regulatory environment leading to high profiteering and poor quality service from the two players. Country is very much dependent on foreign companies to bring in the state of the art technology and skills to cater to the needs of the developing industries and to train the local labor pool. Recently many foreign settled well educated Angolans are returning to the country to be a part of the growing economy and social fabric. To sum up, Angola remains a very lucrative market for doing business though there is very high difficulty of setting up business due to regulatory environment and different cultural characteristics of Angola as compared to a European and American countries.
West African ports and Angola
There has been considerable economic growth and development along the west coast of Africa and Angola as a fast growing economy is also experiencing major port developments. Appendix C provides a brief on the happenings in the west.
APM Terminals (APMT) is headquartered in The Netherlands and forms part of the A.P. Moller - Maersk group and therefore a sister concern of Maersk Line and all other liner operating companies within that group. It operates a global network of nearly 60 terminals and 160 inland facilities in more than 60 countries. APMT is positioned as one of the three largest terminal operators in the world by handled TEUS.
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Figure : APMM basic group structure
APM Terminals in Angola
APMT is already operating in Luanda since year 2007 in a joint venture (JV) with Lascienda (fictitious name) S.A.R.L. under the name of CargoTerminais. Namibe port offers new growth opportunities for CargoTerminais.
Figure : APMT in Angola
After the Pestel Analysis, we analyze the Port Container Terminal Industry using Porter's five forces as shown in the diagram below.
Figure : Competitive landscape adapted from Port Reforms Toolkit
Before moving to the SWOT analysis, let's analyze the main elements of the competitive landscape from figure above. Given the high fixed costs involved in port terminals' development, barrier to entry is relatively high. In their quest for global expansion, the major global operators try to invade the different markets by building strongholds around the world in selected ports using their advanced know-how on the construction and management of container terminals. In our case, when it comes to West Africa and in particular Angola, CargoTerminais is faced by a major competitor namely ICTSI [Appendix D, Competing Terminal Operator] which has already secured concessions in Nigeria and in final stages of securing second one in Abidjan. Since, only one terminal operator is currently considered by Angolan Government in Port Namibe, competition between the two players is very aggressive. Though Walvis bay (in Namibia) is the main port competitor - as an existing transshipment hub - (Appendix D, Competing Ports) from which CargoTerminais is seeking to take out business, other local Angolan ports Lobito and Amboim can become potential competitors to benefit from the demand supply imbalance in Luanda. In addition, the competitive environment is also highly influenced by other stakeholders like the government who fixes port rates including stevedoring and storage charges. Also, given the weak institutional environment, operators must actively influence government policies to maintain profitability. Furthermore, concessions are given to the outperforming operators and CargoTerminais stands a very good chance given its success in Luanda in terms of ability to handle higher volumes and reducing waiting time for vessels calling Luanda Port.
SWOT Analysis of Cargo Terminais
With respect to Pestel and the Industry Analysis, the following SWOT is derived.
Table : SWOT Analysis
Actions emanating from SWOT analysis of Cargo Terminais is given below which also strengthens its ability to get new concessions like Port Namibe.
Table : Actions emanating from SWOT analysis.
Rationale to invest in Namibe - A strategic fit for Cargo Terminais?
While much focus is given on the bigger ports namely Luanda and Lobito, Namibe, the third largest port of Angola, remains underdeveloped in terms of infrastructure and container terminal facilities. Unlike the other terminals managed by both private and public sector, Namibe remains under the government and lacks professional management set up in its operations. Namibe port is currently operating under capacity in the absence of appropriate equipment, systems and infrastructure leading to low volumes and high waiting time for vessels. CargoTerminais, already operating in Luanda and looking at Lobito, aims to develop Namibe bringing in additional investments in equipments and sytems. By investing in the quay, yard, equipments and systems, CargoTerminais targets an increase in container volumes from the current level. There are a number of ports aiming to be regional transshipment point in South West Africa. CargoTerminais' main strategy is to convert Namibe into a transshipment hub to serve other ports in Angola and countries like Congo. Apart from normal import and exports, Namibe's strategic location makes it a great prospect to become a local transshipment hub. Currently some cargo destined to Angola and Port Lobito is transshipped via Walvis Bay (Namibia). The aim is to make Namibe as a local transshipment hub by taking up cargo from Walvis Bay. In other words, shipping lines will come directly to Namibe for cargo which was previously offloaded at Walvis Bay to later transship to final destinations in Angola. Namibe will in turn reship the cargo to the different ports in Angola instead of Walvis Bay. An example is Far East to Namibe and Namibe to Luanda rather than Far East to Walvis Bay and then to Luanda. In the same way, cargo from different parts in Angola will be transshipped via Namibe to final destinations.
Angola market entry mode: APMT Perspective
Though there are different plausible modes of entry for APMT such as greenfield projects or through acquisitions, Notteboom and Rodrigue (2010) argue that the most common mode of entry is for a global terminal operator to acquire a stake in a local or regional operator, to begin the integration process of the terminals into the existing network. This will in turn help retain existing local expertise and customers and at the same time mitigate foreign control concerns. However, if we analyze the options with respect to APMT from a cultural perspective it has a weak PDI (power distance), high individualist and weak UA culture [Appendix E, Cultural Differences], which is very different from its current Angolan partner, the company's first choice would be to retain full control of investments and operations through a Green Field project (fully owned) or pure acquisition with a big majority share holding. APMT likes to retain maximum flexibility to design, operate and manage their terminals according to their organizational culture and values. But in Angola pure acquisition is not feasible given that the port terminal is under government control and the government is more comfortable with partnerships including local businesses. So given the weak Angolan institutional framework- where market forces are still under developed and regulations and policy making are yet in a developmental stage - the entry mode in Port Namibe is also the same as the one used for CargoTerminais; a JV with the local company which blends local knowledge and presence with the international port operating experience and systems of APMT. So Cargo Terminais aim is to gain concession for the port by committing on port development over multiple years and to retain the same partnership structure as used in CargoTerminais with APMT holding 51% of the shares while the rest is left to the local partners. This strategy of sharing the ownership with the local partners is very much in line with a long term vision of creating value for both the partners and to work on each other's strengths. APMT really values local knowledge and expects the partner add value in terms of ability to negotiate better concessions from the government. APMT also relies heavily on them to navigate the often complex negotiation process involved in such deals with government in Angola.
Working with a local partner also gives APMT more legitimacy in terms of being a partner in the development of the infrastructure of the country and that it is here for the long term. That said, a joint venture has also its challenges such as APMT being able to protect its technologies, manage and adapt to the cultural differences and share control across the organization [Text Book].However given that APMT is already in a JV operating for almost five years in Port Luanda and is successful, adopting the same strategy for Namibe will be the best option. As the firm grows and the local partners gain in experience and maturity, APMT may have to consider operating only as a minority stake holder managing mostly the day to day operations due to the pressure from the local partners to own more share holding. This is not a favored path but increasing pressures from local partnership may force APMT in this direction eventually.
The organizational strategies of Terminal Operators
Given the nature of the port terminal industry where there is a lack of differentiation (except for the location) and limited growth opportunities in the domestic country, port terminal operators try to achieve market concentration globally (Rodrigues et al). Moreover most players are now turning towards the emerging markets (Drewy annual review) where the prospects appear much more certain. This is indeed the case for APMT which has many African terminals, fostering a strategy inclined more on global market coverage to leverage its sister shipping company Maersk Line's volumes and also to service other non-Maersk group, carriers. It is through the concentration strategy - where growth rate is high - that APMT seeks to position itself to be recognized as the leading port terminal operator with high profitability. As we saw earlier Angola's economy is booming and is experiencing rapid growth; APMT is seeking to obtain concessions to operate different ports in the country beating its competitors. APMT has already made a remarkable presence in other West African countries by winning lucrative concession agreements through joint ventures in countries like Cameroon, Ghana, Ivory Coast, Liberia and Nigeria (West Africa Container Trades). This concentration is also evidenced in other regions of the world with Europe being the greatest contributor with 28% followed by the Far East with 19.3%. And now over the past five years, Africa has been a major investment for APMT and more than 13% of its equity TEU (twenty foot equivalent units) traffic now comes from this continent. A much higher proportion of APMT profit comes from the African region compared to the mature port industries in other continents. This concentration strategy benefits APMT given that it can have more control over its operation in the foreign countries and also since this industry does not provide much scope for diversification. APMT achieves competitive advantage mainly through operational efficiency, driving cost efficiencies, deft concession agreements and local partnerships.
The human resource management strategy
LL%20reformat.pdf APM terminals being a global and transnational company has a geocentric framework approach to HRM. APMT recruits its employees both locally and internationally. APMT however gives lot of importance to training its staff. For instance, APMT has a special training programme (MAG-magnet) aimed at grooming global talent. The whole idea is "to nurture, develop and inspire" high-potential managers with a view to retaining the port operator's competitive advantage. CargoTerminais and APM terminals have believed in a Support, Build and Transfer method of human resource management to its operations in Angola. The strategy has been to initially support the operations and initiate many systems and processes with the support of skilled people from its pool of international resources. This will be followed by a period where programs are developed for the trainings and imparting of necessary skills to the local people through a mix of in house and international training programs. People development and Performance management have been the hall mark of CargoTerminais journey in the last five years leading to an organizational culture which is not easy for competitors to copy. CargoTerminais has earned the name as one of the best companies to work for in Angola and has managed to carve its place in the labor market in spite of the existence of many cash rich oil companies vying for available talent.
CSR and business legitimacy
APMT, the international partner in CargoTerminais, operating in over 60 countries shares a very large presence in Angola with other group companies like Maersk Drilling, Shipping and Oil. The group is usually very visible in terms of its commitment towards improvement projects in the society in which they do business. This is based on a larger corporate social responsibility platform that the APMM group has developed over decades of its existence in business in different countries. It has successfully used this as a method of gaining external legitimacy for its businesses. In countries like Angola where these initiatives are viewed with lots of interest helps the company to garner necessary goodwill to operate in these societies. CargoTerminais has initiatives ranging from building houses, schools and other efforts in improving the health care system in Luanda and neighboring areas. These programmes help the company in its commitment to the society and also acts as a bridge to the society. The local partner has been guiding APMT in these efforts to get the right amount of money to the right projects and to make sure that these projects achieve intended impact that is sustainable.